We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Pacific Premier Bancorp, Inc. (NASDAQ:PPBI).
Is Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) a splendid investment right now? Prominent investors are buying. The number of long hedge fund bets rose by 4 lately. Our calculations also showed that PPBI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Pacific Premier Bancorp, Inc. (NASDAQ:PPBI).
How have hedgies been trading Pacific Premier Bancorp, Inc. (NASDAQ:PPBI)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the third quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in PPBI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Cardinal Capital held the most valuable stake in Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), which was worth $37.9 million at the end of the third quarter. On the second spot was GLG Partners which amassed $2.6 million worth of shares. D E Shaw, Arrowstreet Capital, and Weld Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), around 1.16% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.26 percent of its 13F equity portfolio to PPBI.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Weld Capital Management, managed by Minhua Zhang, created the largest position in Pacific Premier Bancorp, Inc. (NASDAQ:PPBI). Weld Capital Management had $1.3 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Qing Li’s Sciencast Management, Michael Gelband’s ExodusPoint Capital, and Mika Toikka’s AlphaCrest Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) but similarly valued. These stocks are Knowles Corp (NYSE:KN), Ping Identity Holding Corp. (NYSE:PING), Columbia Financial, Inc. (NASDAQ:CLBK), and SPS Commerce, Inc. (NASDAQ:SPSC). This group of stocks’ market valuations resemble PPBI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KN | 29 | 307346 | 1 |
| PING | 10 | 38698 | -8 |
| CLBK | 11 | 46457 | 1 |
| SPSC | 24 | 197277 | 4 |
| Average | 18.5 | 147445 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $48 million in PPBI’s case. Knowles Corp (NYSE:KN) is the most popular stock in this table. On the other hand Ping Identity Holding Corp. (NYSE:PING) is the least popular one with only 10 bullish hedge fund positions. Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately PPBI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PPBI investors were disappointed as the stock returned -48.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
